Apollo Global Profit Falls on Weaker Carried Interest Income

Apollo Global Management LLC's fourth-quarter profit fell amid a sharp decrease in the share of money the firm reaps from deals. But the private-equity firm’s full-year profit more than doubled as it sold down a bevy of ownership stakes in companies throughout 2013.

Despite the drop in fourth-quarter profit, Apollo’s financial results beat Wall Street expectations. And the slide in 2013 fourth-quarter profit was in part because of an unusual surge in deal profits known as a “catch up” in the final three months of 2012.

The company reported a profit of $159.2 million, or 94 cents a Class A share, down from $171.5 million, or $1.12 a share, a year earlier. Apollo said full-year profit increased to $659.4 million, or $4.06 a share, up from $311 million, or $2.06 a share, at the end of 2012.

Apollo’s economic net income for the fourth quarter fell to $421.7 million, or $1.06 a share, from $655.8 million, or $1.69 a share, a year earlier. Still, that result topped Wall Street analysts’ forecast of 82 cents a share.

Apollo’s full-year economic net income increased to $1.9 billion, or $4.80 per share, from $1.5 billion, or $3.82 a share, for all of 2012. Private-equity firms view economic net income as a better gauge of performance because it includes realized and unrealized gains and losses and quirks related to private partnerships becoming public companies.

Apollo’s 2013 dividend came in at $3.98, double the payout for all of 2012. Apollo’s fourth-quarter dividend stood at $1.08, the firm said.

The private-equity firm’s carried interest—the share of deal profits Apollo reaps after fund investors receive returns—fell to $526.8 million from $962.3 million during the same time period a year earlier.

Unlike the fourth quarter of 2013, Apollo in the final three months of 2012 reaped “catch-up” unrealized carried interest income from a fund that surpassed a return hurdle, the firm said. Apollo, like other private-equity firms, doesn’t recognize its share of deal profits until a fund surpasses a certain return threshold. Once that so-called hurdle rate is met, Apollo gets to “catch up” and recognize a bevy of gains for a time.

Apollo’s overall profits for 2013 were the result of a flurry of sales in shares of companies it owned. Apollo was among the most active private-equity firms rushing to the exits to take advantage of a robust stock market that sent values of ownership stakes higher. Apollo co-founder Leon Black in early 2013 cited historically inviting market conditions and said his firm was “selling everything that’s not nailed down in our portfolio.”

Apollo and other private-equity firms make money by, among other things, buying companies that they later sell outright or take public.

Apollo clinched more than 20 share sales in 2013 and took another nine companies public. The share sales included LyondellBasell Industries, Sprouts Farmers Market Inc. and Norwegian Cruise Line Holdings Ltd.

Apollo is betting it can continue taking advantage of a relatively high stock market to realize returns, selling shares in a series of companies already during the first few weeks of 2014.

The firm is also poised to start putting money to work with new buyouts. Apollo just raised more than $18 billion for its latest private-equity fund, the largest in its history and the biggest haul for buyouts raised since the financial crisis.

Apollo in January agreed to buy the owner of the struggling family-restaurant chain Chuck E. Cheese’s for about $950 million. The acquisition fit with Apollo’s reputation of buying out-of-favor companies.